nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒03‒05
27 papers chosen by
Thomas Andrén

  1. Inequality and the Size of Government By Weijie Luo; Andrew Pickering; Paulo Santos Monteiro
  2. Capital Taxation in a Fiscal Union – Implications of Simultaneous Horizontal and Decentralized Leadership By Sjögren, Tomas
  3. Immobilizing Corporate Income Shifting: Should It Be Safe to Strip in the Harbor? By Schindler, Dirk Steffen; Gresik, Thomas; Schindler, Dirk; Schjelderup, Guttorm
  4. Taxes, Expenditures, Poverty and Income Distribution in Argentina By Darío Rossignolo
  5. The Intergenerational Causal Effect of Tax Evasion: Evidence from the Commuter Tax Allowance in Austria By Wolfgang Frimmel; Martin Halla; Joerg Paetzold
  6. Optimal Spatial Taxation: Are Big Cities too Small? By Jan Eeckhout; Nezih Guner
  7. Income taxation and the timing of marriage By Fink, Alexander
  8. Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfer By Ali Enami; Nora Lustig; Alireza Taqdiri
  9. Welfare: Savings not Taxation By Douglas, R; MacCulloch, Robert
  10. Pricing annuities: The role of taxation in retirement decisions By Bütler, Monika; Ramsden, Alma
  11. Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries By Nora Lustig
  12. Child-Related Transfers, Household Labor Supply and Welfare By Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
  13. Female labour supply and childcare in Italy By Edlira Narazani; Francesco Figari
  14. Inequality and Fiscal Redistribution in Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa By Nora Lustig
  15. Ho to Delay Labor Market Exit and Pension Claiming? By Staubli, Stefan; Lalive, Rafael
  16. Can Poverty-Reducing and Progressive Tax and Transfer System Hurt the Poor? By Sean Higgins; Nora Lustig
  17. The crucial role of social welfare criteria for optimal inheritance taxation By Esteban García-Miralles
  18. The Efficiency Costs of Dividend Taxation with Managerial Firms By Köthenbürger, Marko; Stimmelmayr, Michael
  19. Taxes and the Location of Targets By Arulampalam, Wiji; Devereux, Michael P.; Liberini, Federica
  20. The effects of tax on bank liability structure By Leonardo Gambacorta; Giacomo Ricotti; Suresh Sundaresan; Zhenyu Wang
  21. Consensus income distribution By Stark, Oded; Falniowski, Fryderyk; Jakubek, Marcin
  22. The effects of tax on bank liability structure By Leonardo Gambacorta; Giacomo Ricotti; Suresh Sundaresan; Zhenyu Wang
  23. Do politicians gratify core supporters? Evidence from a discretionary grant program By Kauder, Björn; Björn, Kauder; Niklas, Potrafke; Markus, Reischmann
  24. The Impact of Tax Treaties and Repatriation Taxes on FDI Revisited By Harendt, Christoph; Dreßler, Daniel; Overesch, Michael
  25. The effect of business property and land transfer taxes on new investment By Adam Found; Peter Tomlinson
  26. Automation and inequality with taxes and transfers By Rod Tyers; Yixiao Zhou
  27. "Do Consumption Externalities Correspond to the Indivisible Tax Rates on Consumpiton?" By Yoichi Gokan

  1. By: Weijie Luo; Andrew Pickering; Paulo Santos Monteiro
    Abstract: The median voter theory of government size predicts that greater inequality leads to greater demand for redistribution and larger government (Meltzer and Richard, 1981). However, this prediction is often rejected empirically. This paper distinguishes between income inequality induced by differences in labor productivity and income inequality induced by differences in capital income. Whilst the standard argument applies to productivity-induced income inequality, greater capital income inequality leads to smaller government if, as often observed, capital income is difficult to tax. Using OECD data, government size and capital income inequality (proxied by the top 1% income share) are found to be negatively related in both fixed effects and instrumental variable regressions. Moreover, controlling for capital income inequality yields a positive and significant relationship between government size and labor income inequality, as originally conjectured.
    JEL: D78 E62 H10
    Date: 2017–02
  2. By: Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This article concerns capital taxation and public good provision in a two-layer fiscal union where the federal government uses lump-sum transfers to redistribute resources between two local jurisdictions, and where each local government uses a capital tax and a lump-sum tax to finance the provision of a local public good. The novelty is to allow for simultaneous horizontal and decentralized leadership (double leadership) which means that one of the local governments is able to exercise Stackelberg leadership both vis-a-vis the other local government and vis-a-vis the federal government. Among the results it is shown that the capital tax becomes redundant as a policy instrument for the double leader if the other state government acts as a decentralized leader vis-a-vis the federal government. If, instead, the other state government does not exercise leadership vis-a-vis the federal government then the double leader will implement a capital tax which is allocatively efficient from the perspective of the fiscal union as a whole. It is also shown that double leadership exacerbates the under-taxation inefficiency that earlier research has shown exists in a fiscal union with decentralized leadership.
    Keywords: Federalism; capital taxation; commitment; leadership
    JEL: H10 H21 H77
    Date: 2017–02–23
  3. By: Schindler, Dirk Steffen; Gresik, Thomas; Schindler, Dirk; Schjelderup, Guttorm
    Abstract: Many subsidiaries can deduct interest payments on internal debt from their taxable income. By issuing internal debt from a tax haven, multinationals can shift income out of host countries through the interest rates they charge and the amount of internal debt they issue. We show that, from a welfare perspective, thin-capitalization rules that restrict the amount of debt for which interest is tax deductible (safe harbor rules) are inferior to rules that limit the ratio of debt interest to pre-tax earnings (earnings stripping rules), even if a safe harbor rule is used in conjunction with an earnings stripping rule.
    JEL: H26 H25 K34
    Date: 2016
  4. By: Darío Rossignolo (University of Buenos Aires)
    Abstract: Using standard fiscal incidence analysis, this paper estimates the impact of tax and expenditure policies on income distribution and poverty in Argentina with data from the National Household Survey on Incomes and Expenditures 2012-2013. The results show that fiscal policy has been a powerful tool in reducing inequality and poverty but that the unusually high levels of public spending may make the programs unsustainable.
    Keywords: Taxes, public expenditures, inequality, poverty
    JEL: H2 I3 D3
    Date: 2016–05
  5. By: Wolfgang Frimmel; Martin Halla; Joerg Paetzold
    Abstract: Does tax evasion run in the family? To answer this question, we study the case of the commuter tax allowance in Austria. This allowance is designed as a step function of the distance between the residence and the workplace, creating sharp discontinuities at each bracket threshold. The distance to these brackets is a strong determinant of compliance since it corresponds to the probability of detection. The match of different administrative data sources allows us to observe actual compliance behavior at the individual level across two generations. To identify the intergenerational causal effect in tax evasion behavior, we use the paternal distance-to-bracket as an instrumental variable for paternal compliance. We find that paternal noncompliance increases children’s non-compliance by about 20 percent.
    Keywords: Tax evasion, tax morale, intergenerational correlation, intergenerational causal effect.
    JEL: H26 A13 H24 J62 D14
    Date: 2017–01
  6. By: Jan Eeckhout (UCL and Barcelona GSE-UPF-ICREA); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We analyze the role of optimal income taxation across different local labor markets. Should labor in large cities be taxed differently than in small cities? We find that a planner who needs to raise a given level of revenue and is constrained by free mobility of labor across cities does not choose equal taxes for cities of different sizes. The optimal tax schedule is location specific and tax differences between large and small cities depends on the level of government spending, the concentration of housing wealth and the strength of agglomeration economies. Our estimates for the US imply higher optimal marginal rates in big cities than in small cities. Under the current Federal Income tax code with progressive taxes, marginal rates are already higher in big cities which have higher wages, but the optimal difference we estimate is lower than what is currently observed. Simulating the US economy under the optimal tax schedule, there are large effects on population mobility: the fraction of population in the 5 largest cities grows by 7.6% with 3.4% of the country-wide population moving to bigger cities. The welfare gains however are smaller. This is due to the fact that much of the output gains are spent on the increased costs of housing construction in bigger cities. Aggregate goods consumption goes up by 1.51% while aggregate housing consumption goes down by 1.70%.
    Keywords: Misallocation, taxation, population mobility, city size, general equilibrium.
    JEL: H21 J61 R12 R13
    Date: 2017–01
  7. By: Fink, Alexander
    Abstract: By modifying the incentive structure, taxes affect human behavior. I investigate how the German income tax code influences the timing of civil marriages. The German income tax code contains provisions from which married couples stand to benefit relative to unmarried couples. If their individual incomes differ, legally married couples may benefit from filing their income taxes jointly due to a progressive income tax. The gain from joint taxation for married couples accrues in every year. Couples also enjoy it in the year in which they marry, independent of the month of the marriage. I use data from the German Socio-Economic Panel to the hypothesis that couples with larger gains from joint taxation are more likely to marry late in the current year instead of early in the subsequent year. The results provide strong support for the hypothesis that pecuniary gains from joint taxation incentivize couples to prepone their marriages to the current year.
    JEL: J12 D10 H24
    Date: 2016
  8. By: Ali Enami (Stone Center for Latin American Studies, Department of Economics, Tulane University. Commitment to Equity Institute (CEQI).); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University. Commitment to Equity Institute (CEQI).); Alireza Taqdiri (University of Akron, OH, USA)
    Abstract: Using the Iranian Household Expenditure and Income Survey (HEIS) for 2011/12, we apply the marginal contribution approach to determine the impact and effectiveness of each fiscal intervention, and the fiscal system as a whole, on inequality and poverty. Net direct and indirect taxes combined reduce the Gini coefficient by 0.0644 points and the headcount ratio by 61 percent. When the monetized value of in-kind benefits in education and health are included, the reduction in inequality is 0.0919 Gini points. Based on the magnitudes of the marginal contributions, we find that the main driver of these reduction is the Targeted Subsidy Program, a universal cash transfer program implemented in 2010 to compensate individuals for the elimination of energy subsidies. The main reduction in poverty occurs in rural areas, where the headcount ratio declines from 44 to 23 percent. In urban areas, fiscally-induced poverty reduction is more modest: the headcount ratio declines from 13 to 5 percent. Taxes and transfers are similar in their effectiveness in achieving their inequality-reducing potential. By achieving 40 percent of its inequality-reducing potential, the income tax is the most effective intervention on the revenue side. On the spending side, Social Assistance transfers are the most effective and they achieve 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from being taxed. In contrast, since the bulk of transfers are not targeted to the poor, they are not very effective: the most effective ones achieve 20 percent of their poverty reduction potential. The effectiveness of the Targeted Subsidy Program could be improved by eliminating the transfer to top deciles and re-allocating the freed funds to the poor.
    Keywords: Inequality, poverty, marginal contribution, CEQ framework, policy simulation
    JEL: D31 H22 I38
    Date: 2016–07
  9. By: Douglas, R; MacCulloch, Robert
    Abstract: Many nations are seeking to reform their welfare states so that costs to the government can be reduced and the quality of outcomes improved. As a potential way to achieve these aims, there has been a surge of interest in the Singaporean model which features compulsory savings accounts and transparent pricing of health services. It has achieved some of the best health-care outcomes in the world at a cost that is the lowest among high income countries. In this paper we show how tax cuts can be designed to help establish compulsory savings accounts so that a publicly funded welfare system can be changed into one that relies more heavily on private funding in a politically feasible way. To our knowledge, showing how both a tax and welfare reform can be jointly designed to enable this transition to occur has not been done before. Our policy reform creates institutions that have features in common with Singaporean ones, especially for health-care. However there are also key differences. We present a new unified approach to the funding of health, retirement and risk-cover (for events like unemployment) through the establishment of a set of compulsory savings accounts. A case study of New Zealand is used as an illustration. The fiscal impact of our proposed reform on the government???s current and future budgets is reported, as well as its effect on low, middle and high income individuals.
    Date: 2016
  10. By: Bütler, Monika; Ramsden, Alma
    Abstract: This paper investigates the role of taxation in individual annuitization decisions by exploiting differences in relative taxation between the one-off lump sum payment and the life-long annuity. In a first step taxes are imputed for both the lump sum and the annuity for each individual whose retirement choice is recorded in an administrative dataset from a large Swiss pension fund. Using a variety of measures of taxation we show that taxes can explain a significant part of the variation in annuity rates. Furthermore, exploiting kinks in the tax schedule within a regression discontinuity framework we find evidence for tax optimization strategies by individuals. The results of this paper suggest that individuals react strongly to tax incentives when making retirement choices.
    JEL: D91 H24 J26
    Date: 2016
  11. By: Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI).)
    Abstract: Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing but not always propoor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.
    Keywords: Fiscal incidence, social spending, inequality, poverty, developing countries
    JEL: H22 H5 D31 I3
    Date: 2017–01
  12. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Remzi Kaygusuz (Tilburg University); Gustavo Ventura (Arizona State University)
    Abstract: What are the macroeconomic and welfare effects of expanding transfers to households with children in the United States? How do childcare subsidies compare to alternative policies? We answer these questions in a life-cycle equilibrium model with household labor-supply decisions, skill losses of females associated to non participation, and heterogeneity in terms of fertility, childcare expenditures and access to informal care. We consider the expansion of transfers that are contingent on market work - childcare subsidies and Child and Dependent Care Tax Credits (CDCTC) - versus those that are not - Child Tax Credits (CTC). We find that expansions of transfers of the first group have substantial positive effects on female labor supply, that are largest at the bottom of the skill distribution. Universal childcare subsidies at a 75% rate lead to long-run increases in the participation of married females of 8.8%, while an equivalent expansion of the CTC program leads to the opposite - a reduction of about 2.4%. We find that welfare gains of newborn households are substantial and up to 2.3% under the CDCTC expansion. The expansion of none of the existing programs, however, receives majority support at the time of its implementation. Our findings show substantial heterogeneity in welfare effects, with a small fraction of households - young and poorer households with children - who gain significantly while many others lose.
    Keywords: Household labor supply, child-related transfers, childcare.
    JEL: E62 H24 H31
    Date: 2016–12
  13. By: Edlira Narazani (European Commission - JRC); Francesco Figari (Università degli Studi dell'Insubria)
    Abstract: It is widely recognized that childcare has important pedagogical, economic and social effects on both children and parents. This paper is the first attempt to estimate a joint structural model of female labour supply and childcare behavior applied to Italy in order to analyse the effects of relaxing the existing constraints in terms of childcare availability and costs by considering public, private and informal childcare. Results suggest that Italian households might alter their childcare and labour supply behaviors substantially if the coverage rate of formal childcare increases to reach the European targets. Overall, increasing child care coverage is estimated to be more effective in enhancing labor incentives than decreasing existing child care costs, at the same budgetary cost.
    Keywords: childcare, female labour supply, Italy
    JEL: H53 J13 J22 I38
    Date: 2017–02
  14. By: Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University. Commitment to Equity Institute (CEQI).)
    Abstract: This paper examines the redistributive impact of fiscal policy for Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa using comparable fiscal incidence analysis with data from around 2010. The largest redistributive effect is in South Africa and the smallest in Indonesia. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in Brazil and Colombia (over and above market income poverty) due to high consumption taxes on basic goods. The marginal contribution of direct taxes, direct transfers and in- kind transfers is always equalizing. The marginal effect of net indirect taxes is unequalizing in Brazil, Colombia, Indonesia and South Africa. Total spending on education is pro-poor except for Indonesia, where it is neutral in absolute terms. Health spending is pro-poor in Brazil, Chile, Colombia and South Africa,roughly neutral in absolute terms in Mexico, and not pro-poor in Indonesia and Peru.
    Keywords: fiscal incidence, social spending, inequality, developing countries
    JEL: H22 D31 I3
    Date: 2015–07
  15. By: Staubli, Stefan; Lalive, Rafael
    Abstract: Understanding labor market exit and pension claiming is central to pension reform. We study a Swiss reform delaying access to a full retirement pension by two years, from 62 to 64 years, by reducing early pensions by 3.4 % initially, then by 6.8 %, per year of early claiming. We find that increasing the full retirement age (FRA) by one year delays labor market exit by 4 to 6 months, affecting women who leave the labor force at the FRA. Increasing the FRA by one year delays claiming of retirement benefits by 6 to 8 months. Doubling the early retirement penalty, from 3.4% to 6.8%, delays pension claiming by almost 4 months but has no effect on labor market exit. Raising the FRA lowers social security benefits and social security wealth, by about 3 %. Doubling the early retirement penalty neither affect benefits nor social security wealth. An FRA that acts as a default retirement age generates strong effects on work and pension decisions.
    JEL: H55 J21 J26
    Date: 2016
  16. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University.)
    Abstract: Whether the poor are helped or hurt by taxes and transfers is generally determined by comparing income distributions before and after fiscal policy using stochastic dominance tests and measures of progressivity and horizontal inequity. We formally show that these tools can fail to capture an important aspect: that a substantial proportion of the poor are made poorer (or non-poor made poor) by the tax and transfer system. We call this fiscal impoverishment, and axiomatically derive a measure of its extent. An analogous measure of fiscal gains of the poor is also derived, and we show that changes in the poverty gap can be decomposed into our axiomatic measures of fiscal impoverishment and gains. We also establish dominance criteria for unambiguous comparisons of fiscal impoverishment and gains under the current system to that under a proposed reform, for a range of possible poverty lines. We illustrate using Brazilian data.
    Keywords: stochastic dominance; poverty; horizontal inequity; progressivity; mobility
    JEL: I32 H22
    Date: 2015–04
  17. By: Esteban García-Miralles (Banco de España)
    Abstract: This paper calibrates the full social optimal inheritance tax rate derived by Piketty and Saez (2013) and shows that different assumptions on the form of the social welfare function lead to very different optimal inheritance tax rates, ranging from negative (under a utilitarian criterion) to positive and large (even assuming joy of giving motives). The paper also calibrates the optimal tax rate by percentile of the distribution of bequest received, as Piketty and Saez do, but accounting for heterogeneity in wealth and labor income. The result is that the optimal tax rate from the perspective of the non-receivers varies significantly, contrary to the constant tax rate obtained by these authors.
    Keywords: optimal taxation, inheritance, social welfare criteria
    JEL: H21 H23 H24
    Date: 2017–02
  18. By: Köthenbürger, Marko; Stimmelmayr, Michael
    Abstract: The paper analyzes the efficiency costs of dividend taxation in an effort-based corporate agency model in which non-verifiable managerial effort enhances taxable profits. We show that investment changes following a rise in dividend taxes might not be sufficient to infer the efficiency cost of dividend taxation as well as the financing regime of the firm that underlies the investment response, in contrast to insights from previous literature. We provide a testable implication to infer the mode of investment finance from investment responses. Furthermore, we show that imposing income tax on managerial incentive pay is welfare equivalent to a general dividend tax. Finally, we relate the results to recent empirical findings in the literature on dividend taxation.
    JEL: H21 D21 D61
    Date: 2016
  19. By: Arulampalam, Wiji (Department of Economics, University of Warwick ; IZA ; Oslo Fiscal Studies ; Oxford Centre for Business Taxation); Devereux, Michael P. (Oxford Centre for Business Taxation); Liberini, Federica (MTEC, ETH Zurich)
    Abstract: We use firm-level data to investigate the impact of taxes on the international location of targets in M & A allowing for heterogeneous responses by companies. The statutory tax rate in the target country is found to have a negative impact on the probability of an acquisition in that country. In addition, the estimated size of the effect is found to depend on whether (i) acquirer is a domestic or a multinational enterprise ; (ii) the acquisition is domestic or cross-border ; and (iii) the acquirer's country has a worldwide or territorial tax system.
    Keywords: Multinational enterprises ; cross-border expansion ; target choice ; corporation income tax ; mixed logit
    JEL: G34 H25 H32 C25
    Date: 2017
  20. By: Leonardo Gambacorta (Bank for International Settlements); Giacomo Ricotti (Bank of Italy); Suresh Sundaresan (Columbia University, Graduate School of Business); Zhenyu Wang (Indiana University, Kelley School of Business)
    Abstract: This paper examines the effects of taxation on the liability structure of banks. We derive testable predictions from a dynamic model of optimal bank liability structure that incorporates bank runs, regulatory closure and endogenous default. Using the supervisory data provided by the Bank of Italy, we empirically test these predictions by exploiting exogenous variations of the Italian tax rates on productive activities (IRAP) across regions and over time (especially since the global financial crisis). We show that banks endogenously respond to a reduction in tax rates by reducing non-deposit liabilities more than deposits in addition to lowering leverage. The response on the asset side depends on the financial strength of the bank: well-capitalized banks respond to a reduction in tax rates by increasing their assets, but poorly-capitalized banks respond by cleaning up their balance sheet.
    Keywords: bank liability structure, corporate tax, leverage
    JEL: G21 G32 G38 H25
    Date: 2017–02
  21. By: Stark, Oded; Falniowski, Fryderyk; Jakubek, Marcin
    Abstract: In determining the optimal redistribution of a given population's income, we ask which factor is more important: the social planner's aversion to inequality, embedded in an isoelastic social welfare function indexed by a parameter alpha, or the individuals' concern at having a low relative income, indexed by a parameter beta in a utility function that is a convex combination of (absolute) income and low relative income. Assuming that the redistribution comes at a cost (because only a fraction of a taxed income can be transferred), we find that there exists a critical level of beta below which different isoelastic social planners choose different optimal allocations of incomes. However, if beta is above that critical level, all isoelastic social planners choose the same allocation of incomes because they then find that an equal distribution of incomes maximizes social welfare regardless of the magnitude of alpha.
    Keywords: Maximization of social welfare,Isoelastic social welfare functions,Deadweight loss of tax and transfer,Concern at having a low relative income,Social planners' aversion to inequality
    JEL: D31 D60 D63 H21 I38
    Date: 2017
  22. By: Leonardo Gambacorta; Giacomo Ricotti; Suresh Sundaresan; Zhenyu Wang
    Abstract: This paper examines the effects of taxation on the liability structure of banks. We derive testable predictions from a dynamic model of optimal bank liability structure that incorporates bank runs, regulatory closure and endogenous default. Using the supervisory data provided by the Bank of Italy, we empirically test these predictions by exploiting exogenous variations of the Italian tax rates on productive activities (IRAP) across regions and over time (especially since the global financial crisis). We show that banks endogenously respond to a reduction in tax rates by reducing non-deposit liabilities more than deposits in addition to lowering leverage. The response on the asset side depends on the financial strength of the bank: well-capitalized banks respond to a reduction in tax rates by increasing their assets, but poorly-capitalized banks respond by cleaning up their balance sheet.
    Keywords: bank liability structure, corporate tax, leverage
    Date: 2017–02
  23. By: Kauder, Björn; Björn, Kauder; Niklas, Potrafke; Markus, Reischmann
    Abstract: We investigate whether politicians award intergovernmental grants to core supporters. Our new dataset contains information on discretionary project grants from a German state government to municipalities over the period 2008-2011. The results show that discretionary grants were awarded to municipalities with many core supporters of the incumbent state government. Discretionary grants per capita increased by about 1.4 percent when the vote share of the incumbent party in the state election increased by one percentage point. We propose to trim discretionary project grants to the benefit of formula-based grants.
    JEL: D72 H72 H77
    Date: 2016
  24. By: Harendt, Christoph; Dreßler, Daniel; Overesch, Michael
    Abstract: We revisit the effects of double tax treaties on foreign direct investment. Previous empirical studies provide somewhat counterintuitive results suggesting insignificant or even negative effects of tax treaties. Using a rich firm-level dataset provided by the German Central Bank we analyze the investment impact of double tax treaties and repatriation taxes between more than 3,000 country pairs. Whereas we do not find a significant effect of tax treaties on overall investment, we show that repatriation taxes have an adverse effect on fixed assets and a positive effect on financial assets. The latter supports the assumption that firms defer profit distribution to avoid taxes. Correspondingly, we also find that revenue reserves increase in repatriation taxes.
    JEL: F23 H25 H32
    Date: 2016
  25. By: Adam Found; Peter Tomlinson
    Keywords: Business Fiscal and Tax Policy
    JEL: H25 H71
    Date: 2016–12
  26. By: Rod Tyers; Yixiao Zhou
    Abstract: Technical change in key OECD countries since 1990 is examined in terms of its contributions to total factor productivity and to factor bias. The dependence of real income and inequality on changes in factor abundance, total factor productivity, factor bias, the relative cost of capital goods and the progressivity of the tax system are quantified using an elemental general equilibrium model with three households. For the US, changes in factor bias are shown to have been responsible to the great majority of the observed increase in inequality between 1990 and 2008. The widely anticipated further twist away from low-skill labour is then examined, with downward rigidity of low-skill wages and transfers that sustain low-skill welfare, the increments to which are financed either from capital income or consumption taxes. The potential is identified for unemployment, or “subsidised leisure”, to rise to extraordinarily high levels, with Pareto improving gains requiring that the technology twist accompanies substantial increases in total factor productivity.
    Keywords: Automation, income distribution, tax, transfers, general equilibrium analysis
    JEL: C58 D33 D58 O33
    Date: 2017–02
  27. By: Yoichi Gokan (Faculty of Economics, Ritsumeikan University)
    Abstract: This paper puts the apperantly di¤erent distortions of consumption externalities and endogenous consumption taxes to work in the one-sector Ramsey model without any distortions. We will prove that the two distortions can have similar or possibly exact same dynamic impacts on the aggregate economy, only if we use very familiar preferences in macro-dynamic literature. These two distortions ana- lytically have a very close similarity as the obstacle distorting a market equilibrium path and consumption externalities seem the invisible tax rates (transefer rates) on consumption for positive (negative) external e¤ects.
    Date: 2017–03

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